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Hedge Funds Are Crazy About Ally Financial Inc (ALLY)

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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to the smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Ally Financial Inc (NYSE:ALLY)? The smart money sentiment can provide an answer to this question.

Ally Financial Inc (NYSE:ALLY) was in 57 hedge funds' portfolios at the end of September. The all time high for this statistic is 57. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. ALLY shareholders have witnessed an increase in support from the world's most elite money managers of late. There were 54 hedge funds in our database with ALLY holdings at the end of June. Our calculations also showed that ALLY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we're going to take a look at the recent hedge fund action encompassing Ally Financial Inc (NYSE:ALLY).

Howard Marks of Oaktree Capital
Howard Marks of Oaktree Capital

Howard Marks of Oaktree Capital

Do Hedge Funds Think ALLY Is A Good Stock To Buy Now?

At the end of September, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. By comparison, 53 hedge funds held shares or bullish call options in ALLY a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Ally Financial Inc (NYSE:ALLY) was held by Arrowstreet Capital, which reported holding $442.3 million worth of stock at the end of September. It was followed by Oaktree Capital Management with a $351 million position. Other investors bullish on the company included Holocene Advisors, D E Shaw, and Punch Card Capital. In terms of the portfolio weights assigned to each position Punch Card Capital allocated the biggest weight to Ally Financial Inc (NYSE:ALLY), around 43.55% of its 13F portfolio. Glendon Capital Management is also relatively very bullish on the stock, setting aside 6.83 percent of its 13F equity portfolio to ALLY.

Now, key hedge funds were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the most valuable position in Ally Financial Inc (NYSE:ALLY). Balyasny Asset Management had $38.4 million invested in the company at the end of the quarter. Usman Waheed's Strycker View Capital also made a $6.7 million investment in the stock during the quarter. The other funds with brand new ALLY positions are Ravi Chopra's Azora Capital, Paul Marshall and Ian Wace's Marshall Wace LLP, and Allon Hellmann's Full18 Capital.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Ally Financial Inc (NYSE:ALLY) but similarly valued. These stocks are Duke Realty Corporation (NYSE:DRE), KB Financial Group, Inc. (NYSE:KB), Healthpeak Properties, Inc. (NYSE:PEAK), Teradyne, Inc. (NASDAQ:TER), Lyft, Inc. (NASDAQ:LYFT), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), and NICE Ltd (NASDAQ:NICE). This group of stocks' market values resemble ALLY's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DRE,13,67287,-2 KB,8,21128,0 PEAK,20,202911,-2 TER,42,1369839,-2 LYFT,33,900001,-10 TTWO,53,1196708,-2 NICE,27,1119470,5 Average,28,696763,-1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $697 million. That figure was $2517 million in ALLY's case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand KB Financial Group, Inc. (NYSE:KB) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Ally Financial Inc (NYSE:ALLY) is more popular among hedge funds. Our overall hedge fund sentiment score for ALLY is 88. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Unfortunately ALLY wasn't nearly as popular as these 5 stocks and hedge funds that were betting on ALLY were disappointed as the stock returned -9.8% since the end of the third quarter (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.